The GRI Perspective

We need to talk about tax
Issue 5 - 28 March 2022

The news that investors are pressuring Amazon to increase transparency on where andhow much it pays in tax – with a shareholder resolution that calls for Amazon’s board toissue a tax transparency report in accordance with GRI 207: Tax – should not come as asurprise. Afterall, GRI’s Tax Standard was developed in response to growing stakeholder
demands, especially from investors, for more and meaningful tax information to beprovided by companies.
During the consultation to develop the Tax Standard, more than 110 stakeholders
submitted feedback, of which 55% represented the investor community with jointly
invested assets in excess of $2.5 trillion. Besides, as we share below, many multinational
companies already report voluntarily under GRI 207.

Tax as an ESG metric
Going back to basics, taxes are levied for threemain reasons: financing of the state, redistributionof wealth and to influence behavior. Nowadays
it is widely accepted that taxes are central to themacroeconomic stability of countries. They are a key
tool in reducing global and national inequality andfinancing the low-carbon transition. And as global
geopolitics are currently demonstrating, taxes are avital instrument to fund defense, security and healthcare. Not surprisingly, the UN has acknowledgedthat taxes play a vital role in achieving theSustainable Development Goals (SDGs).

LEGAL

POLICY

Co-operative Tax
Compliance

Platform for Tax
GoodGovernanceKing Code ofGovernance forSouth Africa 2009
(King III)The evolution of tax
reporting
Much of the debate on tax transparency has
centered on the credibility of the international tax
system as triggered by amongst others the Lux
Leaks, the Panama Papers and the Luanda Leaks.
However, focus was not usually applied in thebroader sustainability context. This changed with theintroduction of GRI 207 in 2019, delivering the firstglobal standard for tax transparency. Tax is now a
topic that not only encompasses legal and financial
issues, but also governance, corporate social
responsibility and stakeholder engagement. GRI
207 emphasized that achieving the SDGs is notpossible without including tax as a sustainability
topic, with an appropriate standard to report on.

SUSTAINABILITY

GOVERNANCE

Call forContributions:Sustainable taxSystemMeasuring
Stakeholder
Capitalism

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Momentum on tax transparency
Prior to GRI 207 there were already several
initiatives1 formulating guiding principles for‘good tax behavior’, amongst them the B-Teamprinciples. However, as discussed in a previous GRI
Perspective, the application of principles withouta monitoring function attached gives no certaintyof compliance. The strength of GRI 207 is thatit has incorporated guiding principles of goodtax behavior into a single, coherent, globally
applicable reporting standard.
Under GRI 207, organizations are asked to provide
insights into four main topics: tax strategy; tax risk
and control environment; stakeholder engagement;
public country-by-country information. Reporting inaccordance with GRI 207 also allows organizations
to address the needs of investors as set in the UNPRI guidance.

Since its launch, a growing number of companies
are already voluntarily reporting with GRI 207.
Allianz, Anglo American, BP, Credit Suisse,
Deutsche Bank, Enel, Lukoil, Nestlé, NN Group,Novartis, Orsted, Phillips, Publicis Groupe, SAP,
Swiss Re, UBS, Unibanco, Visa, Volkswagen, andZurich Insurance – to name a few.
Moreover, various stakeholders incorporate(components of) GRI 207 in broader regulations,including in the OECD BEPS 13 (base erosionprofit shifting) requirements, and the upcoming EU
country-by-country reporting Directive. More recently
also in the final advice on the EU Social Taxonomy
various elements of GRI 207 can be found and in the
proposal for a UN tax convention bill, the countryby-country part heavily leverages from the GRI TaxStandard.

Is tax material or not?
Despite all this, many tax practitioners still defend
the lack of detailed tax disclosures with the argumentthat tax is not ‘material’. Evergreen arguments
like tax data is difficult to retrieve, exposure tosensitive business secrets; cost of compliance andcompetitive disadvantage are mentioned. The truthis that you can only argue tax is not material if you
proceed from the financial materiality principle onlyand ignore that tax is crucial and therefore material
for sustainable development.
Not being ‘in control’ is never a good argumentfor not disclosing information in an era of‘transparency by default’. Tax soon becomes amaterial topic if you look at the impact taxes haveon the economy, the environment and society.
In addition, the question to what extent tax is a‘material’ ESG topic has already been answered by
WEF/IBC as its ‘Measuring Stakeholder Capitalism’
report.

Many stakeholders – and investors in particular– consider tax to be material. Tax information isincreasingly part of the investment risk analysisprocesses. It is also used more frequently in thecompilation of ESG rankings. Last year Norway’s
sovereign wealth fund dropped several investments
due to lack of tax transparency. All this clearly showsthat modern society does not see tax as a shortterm cost factor only, but as an instrument tocreate socio-economic cohesion, environmental
value, and long-term prosperity.

3Tax planning to save the planet
Organizations can now turn taxes into a competitive advantage. Companies show their impact on climate
and society under the guise of ‘aggressive tax planning to save the planet’, they can use their ‘green tax
burden’ to show progress in the energy transition and net zero commitments. Tax is increasingly an‘engine for good’ and important condition in achieving long-term sustainable value creation. Tax in
ESG goes beyond Co2 taxes and subsidies for solar panels. The interaction of tax behavior across ESG
metrics needs to be fundamentally better understood.

Measurable ESG metrics

Environmental

SocialGovernance

1. Carbon emissions
2. Number of water intensive

1. Types of employee wellness

1. Number of female directors
2. Board oversight of climate

operations

3. Percent of reduction in energy
used

4. Percent of products

initiatives

2. Percent of employees digitallyupskilled

3. Median hourly gender paygap

5. Amount of management

4. Percent of employee retention
5. Percent of employees

6. Sensitivity of earnings to price

6. Percent of gender and racial/sustainably sourced
pay tied to climate response
targets
on carbon aligned to the Paris
Accord

7. Tons of toxic waste

issues3. Number of minority directors
4. Executive compensation

retained after automation
impacts

ethnic group representation

7. Number of suppliers withhigh risk labor conditions andactions taken

Tax in the E

Tax in the S

Tax in the G

1. Environmental taxes e.g.

1. Social insurance, health care -1. Aligning ESG policy with Tax

2. Green subsidies and

2. Gig economy, flexible

2. Tax reporting and stakeholder

3. Compliance and reporting

3. Equal pay, living wages and3. Process controls andcarbon taxes, plastics
incentives

requirements

and pension premiums

workforce and global mobility
remuneration policies

4. Carbon adjustment
mechanism

Tax to ESG metrics

behavior

communication

compliance assurance

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How we can help

Our askAs set out in this paper, tax is a key sustainability
topic. Yet we recognize that effectively applying GRI
207 standard requires support.

We are an international non-profit organization thatreflects multi-stakeholder interests by developing
and setting world-class sustainability reportingstandards.

The GRI Academy offers specific training on GRI
207, to equip reporting organizations and businesspractitioners with its features. Learn more about thefull range of GRI’s services and tools that are here
for you.

Our standards are free to use, but not free todevelop. Creating and maintaining standards is timeand resource intensive. To enable us to keep up thegood work and stay on the leading edge of corporate
sustainability reporting we need your support!

Get in touch 

1. Other examples include ‘A blueprint for responsible and transparent tax behavior by CSR Europe’, The principles for good tax
governance by the association of investors for sustainable development (VBDO) and Principles of Responsible Tax Behavior by
Christian Aid, Oxfam and Action Aid.

Barbara Strozzilaan 336
1083 HN Amsterdam
The Netherlands
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